Indicate by check mark whether the registrant is a
shell company (as defined in Rule 12b-2 of the Exchange Act)
State issuer’s revenues for its most recent fiscal year. $18,732,069 for the 12 months ended September 30, 2007.
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was sold, or the average bid and asked prices of such common equity, as of a specified date within the past 60 days. As of November 15, 2007 the aggregate market value of the common stock held by non-affiliates at the closing price of the registrant’s common stock is approximately $8,634,000.
State the number of shares outstanding of each of the issuer’s class of common equity. As of December 15, 2007, 14,240,315 shares of common stock are outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
If the following documents are incorporated by reference, briefly describe them and identify the part of the Form 10-KSB (e.g., Part I, Part II, etc.) into which the document is incorporated: (1) any annual report to security holders; (2) any proxy or information statement; and (3) any prospectus filed pursuant to Rule 424(b) or (c) of the Securities Act of 1933 (“Securities Act”). None.
Transitional Small Business Disclosure Form (check one): Yes o No x
When used in this annual report, the terms “IceWEB,”, the “Company”, “we,” “our,” and “us” refers to IceWEB, Inc., a Delaware corporation, and our subsidiaries. The information which appears on our web site at www.iceweb.com is not part of this annual report.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
Certain statements in this annual report contain or may contain forward-looking statements that are subject to known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These forward-looking statements were based on various factors and were derived utilizing numerous assumptions and other factors that could cause our actual results to differ materially from those in the forward-looking statements. Potential risks and uncertainties include, among other things, such factors as: our high level of indebtedness and ability to satisfy the same, our history of unprofitable operations, the continued availability of financing in the amounts, at the times and on the terms required, to support our future business and capital projects, the extent to which we are successful in developing, acquiring, licensing or securing patents for proprietary products, changes in economic conditions specific to any one or more of our markets, changes in general economic conditions, our ability to produce and install product that conforms to contract specifications and in a time frame that meets the contract requirements, and the other factors and information disclosed and discussed in other sections of this report.
You should consider the areas of risk described in connection with any forward-looking statements that may be made in this annual report. Readers are cautioned not to place undue reliance on these forward-looking statements and readers should carefully review this annual report in its entirety, including the risks described in Part I - Item 1. Description of Business - Risk Factors. Except for our ongoing obligations to disclose material information under the Federal securities laws, we undertake no obligation to release publicly any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events.
2 CONTENTS
3 PART I
ITEM 1. DESCRIPTION OF BUSINESS
IceWEB, through our Solutions Group, is a rapidly growing provider of computer network security products and services such as access control, wide area network optimization, content filtering, email security, intrusion detection, to the Federal, State, and Local government entities. In addition we are a leading provider of Software-as-a-Service (“SaaS”) applications.
IceWEB’s Solutions Group specializes in network infrastructure security solutions. Through our team of engineers and our partners, including RSA Security, ISS, F5 Networks, Blue Coat, and Cisco, we provide firewall, authentication, PKI, encryption, and traffic filtering products and services to protect network infrastructure. Our customers are primarily Federal, State, and Local government entities. We believe that the combination of our vendor partners/manufacturers, customers, and government contracting vehicles enables our company to be successful in providing the industry’s best network security solutions to government clients and those commercial integrators who service the government. We further believe that we can, through IceWEB Solutions group, position, market, and sell our high margin hosted online subscription services to that constituency enabling us to attain a larger subscriber base for those services.
In addition to the Solutions Group, we offer small and medium sized businesses (“SMBs”) hosted access to enterprise-class applications delivered via the Internet for a reasonable monthly fee. These rapidly growing SaaS offerings include such hosted applications as Microsoft Exchange Server, Sharepoint, BlackBerry Enterprise Server, Good Messaging Server, SPAM and Virus protection, and advanced Email Encryption services. Our current customer base consists of nearly 900 organizations worldwide in both the public and private sectors.
The Company believes that its focus on the large rapidly growing and underserved SMB market will continue to drive significant growth. According to the US Small Business Administration there are approximately 27 million SMBs in the U.S. Most of these companies lack the funds to purchase the necessary hardware and software and the trained staff to maintain it. As these companies are realizing the benefits of Exchange Server and other value added applications and the palatable cost of using a SaaS model, they are migrating to Hosted Microsoft Exchange in large numbers this accelerating growth for the Company. For the fiscal year ended September 30, 2007 approximately 98% of total sales were generated by our IceWEB Solutions Group’s reselling of third-party hardware, software and services, and approximately 2% of our total sales were generated by online products and services.
Pending Acquisition of INLINE Corporation
On December 7, 2007 we entered into a letter of intent to acquire INLINE Corporation. Based within Northern Virginia’s high-tech corridor, just outside Washington, DC, INLINE provides government, commercial customers and universities with storage, information management and infrastructure systems specifically engineered to perform within their respective IT environments. Subject to due diligence and board approvals, the closing of the acquisition is expected to occur on or before December 31, 2007.
Market and Trends
The market for network security product and solutions within the Federal government continues to be strong. IceWEB has an experienced staff of sales professionals. In order to continue our growth into the public sector and commercial markets for Information Security and Storage technologies we will need to execute on a well defined sales and marketing plan. We will be calling key decision makers at federal agencies and target commercial accounts to schedule meetings to discuss their spending initiatives for 2008; this activity helps us align our solutions and vendor partners to propose a solution. We will also be utilizing key government information portals to discover requirements; these portals include, Fed Sources, Ebuy/GSA Advantage and Fedbid. We will be partnering with vendors to do targeted agency trade shows where we present solutions in a tradeshow format. Additionally we will be doing monthly email marketing campaigns to our customers and prospects. These email campaigns will feature our products and solutions. We will also be doing call campaigns to discuss featured technologies and solutions.
4 The market for hosted network applications, also known as both Software as a Service (SaaS) and Utility Computing, and wireless access to web content is expanding exponentially. More and more SMB customers are taking advantage of “hosted applications” versus purchasing and deploying internal network servers. Enterprise class customers (3,000 – 50,000 employees) are also paying close attention to the strong return on investment and reductions in capital expenditures and technical resource savings offered by the SaaS model. Our IceMAIL™, IcePORTAL™, and IceSECURE™ products are specifically targeted to maximize these benefits for our clients.
IDC, a global provider of market intelligence, advisory services, and events for the information technology, telecommunications, and consumer technology markets, predicts that the Software as a Service market will be $10.0 billion by 2008 with an annual growth rate of 25%. The hosted email market and hosted SMB mailboxes are expected also to grow at a compound annual growth rate of 25% through 2011 (according to the Radacati Group). Email has emerged as one of the most important mediums of communications for conducting business for organizations of all sizes, which has led to a demand for more functional email solutions including enterprise class collaboration with shared calendar, tasks, mobile email and instant messaging. Microsoft Exchange has emerged as the dominant product and market leader in this segment and has traditionally been used by very large organizations to improve productivity. Smaller organizations can also benefit from the use of Microsoft Exchange but have found it prohibitively expensive to purchase, install and maintain. Many of these smaller businesses that use email currently rely on simple email solutions from internet service providers. Exchange Hosting is emerging as an attractive alternative for such businesses, because it provides the enterprise-class functionality increasingly needed by organizations of all sizes, at a relatively low monthly cost on a per-user basis.
Our Products and Services
We believe that our two lines of business, IceWEB Solutions Group and our online products and services have many common technologies and permit us to better leverage our personnel and vendor/manufacturer relationships. A brief description of our two lines of business is as follows.
IceWEB Solutions Group™
IceWEB’s Solutions Group specializes in providing advanced network infrastructure security solutions. Through our team of engineers and our partners, some of whom include, Secure Computing, RSA Security, ISS, Blue Coat, F5 Networks, McAfee and Cisco, we provide government agencies with products and services that allow them to effectively deploy complex firewalls, wide area network optimization, user and application authentication, PKI, encryption, and traffic filtering products.
Services and Features for which we act as a reseller include:
The proximity of our offices to Washington, D.C., has provided a strong measure of successful sales into Federal government and civilian agencies solutions for over six years. The Company holds multiple General Services Administration contracts (GSA), and management believes it is well positioned within other avenues through which federal agencies can easily source products and services.
5 Online Products and Services
Starting with enterprise messaging (IceMAIL™), collaboration (IcePORTAL™), and web hosting (IceSECURE™) services, we will continue to add additional software systems to our server farms. Each application and service has the goal of bringing enterprise-level applications, normally cost effective for only large corporations, to small business customers through a monthly/annual subscription plan. We believe that this recurring revenue business model has the ability to bring more consistent profits with a much higher customer retention rate than any other service we has ever offered. We currently have an over 95% retention rate.
IceMAIL™
In December 2005, we launched IceMAIL™, a packaged service that provides a network-hosted groupware, email, calendaring, and collaboration solution utilizing Microsoft Exchange, the most widely used enterprise system available. Customers are able to leverage the full capabilities of Microsoft Exchange and Microsoft Outlook without the initial implementation and maintenance costs associated with such an advanced system. In addition to providing hosted Exchange services, we focus on providing wireless PDA/smartphone synchronization services that enable our customers to have everything in Outlook/Exchange available while traveling away from their office. IceWEB customers may elect to have their business email replicated to and synchronized with virtually any smart phone or PDA available on the market. To perform this replication function we utilize Good Messaging Server, Blackberry Enterprise Server software or ActiveSync from Microsoft Corporation. The Company has established strong relationships with these software vendors and often undertakes joint marketing initiatives to create demand for these optional services.
Features of IceMAIL™ include:
IcePORTAL™
IcePORTAL leverages the power of Microsoft SharePoint to provide customers with a complete Intranet portal for their company. Customers can share and manage announcements, tasks, events/calendars, document libraries, pictures, discussion threads, and more through a single web-based portal with no need to purchase their own network file server.
Features of IcePORTAL include:
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IceSECURE™
IceSECURE is a stand-alone hosted email encryption service. Subscribers to IceSECURE may utilize this service to ensure total privacy (based on the PKI model) of their critical business or personal email communications.
Learningstream.Com
LearningStream.com™ is an online business education portal that offers subscription-based online classes to consumers and corporate customers such as managers, employees, and associations. Business professionals can choose among many different subjects such as making presentations, managing people and learning software applications from training developers such as Fred Pryor Seminars, CareerTrack and Evelyn Woods. LearningStream currently hosts 2,000 online course modules. LearningStream’s revenue for the years ended September 30, 2007 and 2006 were $20,565 and $16,370, respectively.
Technology
Our online products are web-based systems available from any computer in the world via the Internet. We are leveraging the Internet as the transport mechanism to deliver our services due to its wide availability and relatively low cost for connectivity. We also leverage commercial off-the-shelf (COTS) software whenever possible for its three primary advantages, including quick time to market and delivery, reduced upgrade and maintenance costs, and reduced internal development or research and development costs.
The specific software systems we host include IceMAIL™, IcePORTAL™, and IceSECURE™. Each of these systems is hosted in a tier-one data center located in Northern Virginia technology corridor area. With redundant Internet connections, power systems, fire suppression, 24x7 security guards, biometric scanners, and network security systems, we believe that our services are very well protected and exceed what individual small business customers could afford if they were to host a similar system of their own.
IceMAIL is a customized implementation of Microsoft Exchange that is specialized for multi-tenant (multiple customers and domains) use. The IceMAIL server farm consists of redundant Microsoft Windows servers, Active Directory Servers, front-end Exchange servers, SMTP servers, back-end database servers, Storage Area Networks (SANs), GoodLink, Blackberry, ActiveSync, and backup systems. Network security is provided by multiple firewalls and/or gateways and filtering systems. The online purchasing, provisioning, and web-based management consoles are based on technology from SWsoft who is a leader in software/control systems for Internet and application services providers (ASPs) such as our company.
IcePORTAL is a customized implementation of Microsoft SharePoint. The IcePORTAL data is stored using Microsoft SQL and a Storage Area Network (SAN). Services are provided to customers via the Internet and each customer’s “portal” is available through a standard web browser such as Internet Explorer. As it is integrated with IceMAIL, the same network security and redundant servers and data center systems are leveraged. This enabled our company to deploy IcePORTAL for minimal additional costs.
7 IceSECURE is a robust and scalable implementation of PKI encryption. The systems hosting the IceSECURE offering are operated by IBM Global Services and in that environment IceWEB functions as the Root Certification Authority (much like Verisign), providing PKI credentials, managing key recovery and escrow and all other required functions on behalf of our clients.
LearningStream is deployed across a complex proprietary array of web servers and streaming media servers. Course content is streamed via the Internet from Real and Windows Media servers while online purchasing and the course catalog are hosted on Microsoft-based web servers. In early 2007 the Company added nearly 2,000 additional courseware modules to the LearningStream architecture, greatly broadening the offerings depth. Changes were also made to our architecture which allows the delivery and sale of on-line learning content from partners located outside of our server farms. Such content, while purchased through LearningStream, may now be streamed directly from the third party course content providers and partners.
Sales and Marketing
In order to continue our growth into the public sector and commercial markets for Information Security and Storage technologies we will need to execute on a well defined sales and marketing plan. We will be calling key decision makers at federal agencies and target commercial accounts to schedule meeting to discuss their spending initiatives for 2008; this activity helps us align our solutions and vendor partners to propose a solution. We will also be utilizing key government information portals to discover requirements; these portals include, Fed Sources, Ebuy/GSA Advantage and Fedbid.
We will be partnering with vendors to do agency shows where we present solutions in a tradeshow format. Additionally we will be doing monthly email marketing campaigns to our customers and prospects. These email campaigns will feature our products and solutions. We will also be doing call campaigns to discuss featured technologies and solutions.
The Company’s products and services are sold through our direct sales force, online marketing and through strategic channel partners. Our direct sales process typically includes a demonstration of our product capabilities followed by one or more detailed technical reviews. Our employees utilize our software to generate leads, sales, demos and references. Our internal operations and sales tracking are run on our IceMAIL™ and IcePORTAL™ platforms.
During fiscal 2007, our sales and marketing strategy relied mostly upon direct sales and marketing through internet search engines. These efforts succeeded in garnering publicity for our branded SaaS product offerings, allowed us to grow our online subscriber base to over 5,000 monthly subscriptions from approximately 100 monthly subscriptions at September 30, 2006, and assisted the Company in forming several partnerships and joint marketing agreements, including CompUSA and OfficeTalk, Ltd. The average monthly subscription fee during fiscal 2007 was $12.00 per month.
Our marketing plan for fiscal 2008 for our Solutions Group includes email marketing and direct mail campaigns, and targeted trade shows. Our marketing plan for fiscal 2008 for our online products and services includes more concise online marketing of the IceMAIL™, IcePORTAL™ and IceSECURE™ products along with magazine or print advertisements in primary and secondary markets throughout the U.S. We anticipate to spend up to $150,000 per quarter on marketing our online products. We have also engaged the services of experienced professionals to further enhance our product marketing, improve our Internet search engine optimization, pay-per-click advertising, and direct marketing sales effectiveness. Our marketing efforts also produce materials in support of prospective sales to new customers, including brochures, data sheets, white papers, presentations and demonstrations.
For the fiscal years ended September 30, 2007 and 2006 we spent $192,816 and $225,338, respectively, on marketing.
8 Our Strategy for Fiscal 2008
The IceWEB Solutions Group’s focus on network security and the Federal government will continue. We are carefully evaluating new technology products and manufacturers. By continuous training of our employees and partnering with our key vendor partners, we believe that we can continue to accelerate our growth in this market.
During fiscal 2008 we plan on greater automation for IceMAIL™, IcePORTAL™, and IceSECURE™ products. By using internal and external technical resources we will seek to enable customers to manage and control their own environment (self service) or working with IceWEB Customer Service. We believe we will be one of the few companies that allow customers simple yet total control of their features via web-based account management tools. All of our service offerings will have online purchasing and automated provisioning (account creation) that reduced human intervention for these repeatable tasks. This also helps customers with the desire for “immediate satisfaction” by having their product or service immediately available upon purchase.
Subject to the availability of sufficient capital we also plan on continuing to pursue strategic acquisitions that will broaden our product offerings and customer base, advance and expand our technological abilities, increase our cash flow and profitability, and diversify our operations.
Research and Development
IceWEB performed software development and research and development efforts in fiscal 2007 relating to the IceMAIL and IcePORTAL products. In addition, in fiscal 2007, we added messaging encryption, sharepoint portals, and new LearningStream content.
The bulk of our research and development efforts for fiscal 2008 will focus on providing additional hosted application service offerings and improving features for our current “online” services.
Additional archiving and compliance management services will also be added to the new Microsoft Exchange 2007 environment for IceMAIL in fiscal 2008. Computer systems, storage, and software will be implemented to provide current and future IceMAIL customers with increased data storage options to meet industry or Government-specific regulations for data retention. These services will generate additional revenue for IceWEB and attract new customers that must have these services in order to outsource their email system to IceWEB. IceWEB will implement additional online purchasing and automated provisioning so that the IcePORTAL, IceSECURE, and IceVISTA services become visible and manageable within the current web-based control panel system. Currently, only IceMAIL has fully automated provisioning and online purchasing. Adding these capabilities to IcePORTAL, IceSECURE, and IceVISTA will reduce our operational support costs while providing current and new customers a single web-based management console to manage all of their IceWEB-based software services.
Additionally, IceWEB has an aggressive research and development strategy that includes 24/7 operations monitoring and customer support capability, disaster recovery options, the rollout of Microsoft Office Sharepoint Server 2007, Microsoft Project Server 2007, and Microsoft Live Communications Server 2007. We are also planning to expand the hosted website capabilities to include SQL server provisioning, and adding Microsoft Dynamics CRM to the list of hosted product offerings.
These goals were established in fiscal 2007, and efforts to roll out these enhancements will continue in fiscal 2008. Subject to the availability of sufficient working capital, our technology plan calls for a research and development budget of $150,000 per quarter for fiscal 2008 in order to accomplish the above goals.
Intellectual Property
Our success depends in part on our ability to protect our intellectual property. The source codes, object codes, and documentation related to our products are all proprietary to us and as to which copyright in favor of our company arose from the date of creation of the products or the date on which the products were assigned to us, whichever is later. We also rely on common law rights to our trademark and service mark “IceWEB” in both block letters and stylized form. To protect our proprietary rights, we rely generally on copyright and trade secret laws, confidentiality agreements with employees and third parties, and agreements with consultants, vendors and customers, although we have not signed such agreements in every case. Despite such protections, a third party could, without authorization, copy or otherwise obtain and use our intellectual property.
9
It is also possible that our competitors will adopt product or service names similar to ours, thereby impeding our ability to build brand identity and possibly leading to customer confusion. We can give no assurance that our agreements with employees, consultants and others who participate in development activities will not be breached, or that we will have adequate remedies for any breach, or that our trade secrets will not otherwise become known or independently developed by competitors. There can be no assurance that we will be able to adequately protect our trade secrets. Third parties may assert infringement claims against us or against third parties upon whom we rely and, in the event of an unfavorable ruling on any claim, we may be unable to obtain a license or similar agreement to use technology that we rely upon to conduct our business.
In the future we may pursue copyright protection of our source codes, object codes and documentation as well as the registration of certain of our trademarks and service marks in the United States. In general, there can be no assurance that our efforts to protect our intellectual property rights through copyright, trademark and trade secret laws will be effective to prevent misappropriation of our content. Our failure or inability to protect our proprietary rights could materially adversely affect our business, financial condition and results of operations.
We have also obtained the right to the Internet addresses www.iceweb.com, icemail.com, icewebsg.com, learningstream.com, fedzoo.com, and federalinbox.com. As with phone numbers, we do not have and cannot acquire any property rights in an Internet address. We do not expect to lose the ability to use these Internet addresses; however, there can be no assurance in this regard and as the Internet addresses are part of our brand and marketing the loss of one or more of these addressees may have a material adverse ef |
Iceweb, Inc - Recent Material Event |